Astros' payroll doesn't measure up to market size

Team no longer a beneficiary of revenue sharing, but Root deal raises intake

The Diamondbacks will pay Zack Greinke an average of $34 million a year, showing that big spending is possible in a market comparable in size to Houston.

The Diamondbacks will pay Zack Greinke an average of $34 million a...

NASHVILLE, Tenn. - The Astros could spend a lot of money here at the winter meetings to improve their team. They probably won't.

The Arizona Diamondbacks just gave one pitcher, ace Zack Greinke, a six-year deal that pays him a record average of more than $34 million per season. That's more than the payroll of the Astros' entire 2013 opening-day roster. Two Greinkes would cost more than the 2014 opening-day roster.

The Astros' payroll sits around $80 million heading into the first day of the meetings Monday, including projections for arbitration-eligible players. More than two-thirds of all major league teams were at $100 million to start last season, a mark the Astros haven't hit since 2009.

On what grounds can the Astros - now that they have TV revenue coming in and a contender to sustain - continue to act like baseball's worst citizens, the Miami Marlins?

Translator

To read this article in one of Houston's most-spoken languages, click on the button below.

Houston is the fourth-largest city in the country by population. It has the estimated 10th-largest U.S. television market per Nielsen, and it's the 15th-largest market per Major League Baseball's criteria.

Yet on opening day in 2015, the Astros had the 29th-highest payroll of 30 teams.

Problematic slot

The fact MLB ranks Houston as the league's 15th market is no small matter. That slotting has actually hurt them.

It's not a well-publicized segment of the collective bargaining agreement, but half of the 30 major league teams will not receive revenue-sharing money in 2016.

A provision referred to as "market rank disqualification" was put in place in the most recent labor deal, which began with the 2012 season. All clubs in the top 15 markets - and only those clubs - have slowly seen their revenue-sharing intake disappear.

Twenty-five percent of the cut disappeared in 2013, then 50 percent in 2014 and 75 percent in 2015. This upcoming season, it's all gone.

"It affects our economics," Astros general manager Jeff Luhnow said at the GM meetings earlier this offseason. "There's certain teams that are getting a benefit, and there's certain teams that don't, and we're not receiving a benefit."

Revenue sharing is pooled from two primary streams, one of which is a 34 percent share of every team's local revenue.

The logic behind market rank disqualification is twofold. First, there's a belief transferred money should go to clubs that need it, meaning those in markets insufficiently sized to generate enough revenue otherwise. Second, it follows that clubs in larger markets should be able to stand on their own.

Still, no team is ever going to enjoy losing money - particularly not one standing at the cutoff point. Had they been No. 16 - that's the Seattle Mariners - the Astros would have retained a full 100 percent of revenue sharing throughout this CBA.

But the Astros are No. 15. One notch on the list has ostensibly meant millions. That hurts.

"Yes it does," Luhnow said. "Because it's a cliff. Any time you're at a cliff and you're on the wrong side of the cliff - you just missed - it hurts you more than it hurts a team that's all the way at the very bottom or all the way at the very top."

The money forfeited by teams in the top 15 markets goes back proportionally to clubs paying into the revenue-sharing system.

New CBA on horizon

How much revenue-sharing money the Astros or other top-15 teams have lost out on is unknown. Team finances are closely guarded throughout the majors.

The total transfer a year ago, according to a high-ranking executive with a major league club who isn't authorized to discuss the matter publicly, was in the range of $350 million to $400 million. The most an individual team pulled is $50 million, that executive said, with a handful of clubs at $35 million or more.

The effectiveness of the revenue-sharing system on a whole is a touchy subject, as are most things CBA-related, particularly right now. With the agreement set to expire next winter, negotiations loom in coming months.

"I think that, like all aspects of the basic agreement, there'll be conversation internally and probably conversation with the MLBPA about that aspect of revenue sharing," commissioner Rob Manfred said of market rank disqualification. "I think that the individual teams affected have strong feelings about the system and may feel that it needs to be adjusted. That's going to be something that'll be worked out between the teams before we get to the table with the MLBPA."

Many executives, including GMs and team presidents, declined to comment on market rank disqualification when approached by the Chronicle.

Still of concern, particularly in the larger markets, is whether teams are relying too heavily on revenue sharing as a subsidy. Revenue sharing, as the high-ranking executive described it, is to be a kick-starter, not a welfare program.

"Where is that money being spent, and for what reasons is it being spent, and are there enough controls on it?" the executive asked. "Are there people who are using it not for competitive balance on the field but for other reasons?"

During this CBA, the game has seen great parity, revenue sharing's premier goal. The issue that has left the Astros on that "cliff," as Luhnow put it, is one that shouldn't be difficult to fix in the next CBA. But this year's damage, so to speak, is already done.

At the same time, there is something ludicrous about the idea the Astros are disadvantaged by their designation as baseball's 15th-largest market. Shouldn't that placement be considered wildly generous for the fourth-largest city in the country? Should the Astros even be sniffing free money?

Context can be calming.

MLB's exact formula for determining market ranks is not public, but population, household income and TV markets are among the factors. (The union declined comment on the market rank system, but all aspects of revenue sharing are obviously important to players.)

The TV markets seem to really drive the bus. Houston is estimated by Nielsen to be the 10th-largest TV market in the U.S., the same ranking it held at the time the current CBA was ratified.

Two teams in each of the New York, Los Angeles, Chicago, and Bay Area markets combine for the first eight of 15 spots on MLB's market rank list. Toronto, Philadelphia and Boston are tied for ninth, with Washington, Atlanta and Texas also higher than Houston.

All of those market areas were also ahead of Houston in the 2010-12 Nielsen rankings and still are in the recent rankings. (Toronto is not tracked but has a larger population than Houston.)

Clearly, Houston's population size doesn't tell the whole story. By MLB's own assessment, the Astros are a middle-market team.

Still unexplained is why the Astros don't spend in a way that meets even that standard.

"I think that clubs should and do spend commensurate with the economic resources that are available to them - by that I mean money, dollars, revenue," Manfred said. "You can be in an X, Y or Z media market, and if for example you're at the end of a long-term media deal, you may not have media revenue dollars that are commensurate with that market ranking today. You may have to wait until you get a new deal.

"And what clubs should and I think almost without exception do do is spend commensurate with the revenue streams that are available to them at that point in time. You can't spend the next media contract dollars until you get those dollars."

D-Backs find dough

All owners don't spend evenly. They also don't profit evenly.

The Diamondbacks, the team that paid Greinke, are in MLB's 18th-ranked market. The D-backs did receive full revenue-sharing dollars from 2013-16 but are nonetheless a comparable market to Houston.

Arizona's attendance total ranked 23rd in 2015, one spot lower than the Astros.

The D-backs in 2015 received a new cable deal, and the Arizona Republic reported there were indications the deal was worth more than $1.5 billion over 20 years. If the deal paid exactly $1.5 billion evenly over 20 years, the team would receive $75 million annually. (The deal likely starts out at a lower value and escalates every year, as is standard.)

For years, the Astros had a major television revenue hang-up as Comcast SportsNet Houston went through bankruptcy proceedings. But the phoenix that rose from those ashes in 2015 was Root Sports Southwest.

The Astros won't make $350 million in rights fees per year at any point, as Bloomberg reported the Yankees will. But the Astros do have rights-fees income that they did not in 2013-14. (Whether they receive back pay is to be decided in court.)

Certainty helps

The Astros received $59.5 million from Root Sports Southwest in 2015. From 2016-24, the Astros are to receive an average of about $63.6 million, per Chronicle calculations based on court testimony. The deal can be renegotiated before 2025.

If the deal doesn't change and it remained the same even as far as 2034, the Astros would average $73.2 million from 2016 on - basically as much as the D-backs appear in line for in a 20-year span.

"We have more certainty in our revenues now than we did a year ago or two years ago," Luhnow said of the availability of TV money. "Ticket sales, we have a little more certainty on next year. But yeah, that (TV) money is what funds the payroll. … There is a link between the TV revenue next year and the ticket sales next year to how much we should have to spend."

The average team salary on opening day in 2015 per Cot's Contracts values was $125,402,137, the median $116,996,565. Astros owner Jim Crane, who did not respond to a request for comment from the Chronicle, said in 2014 he wished to see more revenue sharing.

"Although money doesn't always win, it would be nice to get that more leveled out and have something closer to what football has where everybody splits the money evenly," Crane said. "I think that's good for the sport."